IP rights in the digital (assets) world: Hermes prevails in “MetaBirkin” NFT case

In a first-of-its-kind decision that comes as a relief for many brand owners, a New York jury found that the popular “MetaBirkin” NFT collection infringed on, and diluted, Hermès' iconic “Birkin” trademark, reminding the digital assets industry that intellectual property rights are enforceable, even in the metaverse. As the explosion in popularity, not just of NFTs, but of artificial intelligence-created art, threatens to blur the lines of what constitutes infringement vs. protected speech, the MetaBirkin case sends a strong message: Digital cowboys, beware!

The case

As one of the world’s first cases involving the infringement of intellectual property rights in the NFT context, from the outset, the MetaBirkin case has been closely watched. On February 14, 2023, following a six-day trial, a jury found that Mason Rothschild was liable for trademark infringement, trademark dilution, and cybersquatting and awarded $133,000 in damages to Hermès.

Hermès brought the action following the creation and sale in 2021 by the artist Mason Rothschild of a collection of one hundred NFTs, depicting Hermès’ famous Birkin bags covered in faux fur. Rothschild also registered and used the domain name www.metabirkin.com and social media accounts such as @metabirkins to promote the sale of the MetaBirkin NFTs.

A central issue in the case was whether the MetaBirkin NFTs may constitute forms of artistic expression protected by the U.S. First Amendment, as a protected form of speech.

The background

Hermès’ January 14, 2022 complaint alleged claims of trademark infringement, false designation of origin, trademark dilution, cybersquatting and injury to business reputation and dilution, as well as misappropriation and unfair competition under New York General Business Law. The complaint further alleged that Rothschild used the name “MetaBirkins” to mislead consumers into believing that the NFTs were affiliated with the Hermès brand and has allowed the artist to profit off Hermès’ goodwill. Hermès later filed an amended complaint which included various examples of alleged consumer confusion (including Instagram comments and media reports). 

In defense, Rothschild filed two motions to dismiss, arguing that his use of the MetaBirkin sign was entitled under the test articulated in Rogers v. Grimaldi, which, based on the First Amendment, permits the unauthorized use of a trademark if such use is artistically relevant and does not explicitly mislead consumers.

Put simply, Hermès argued that that the MetaBirkin NFTs infringed Hermès’ trademark by leading consumers to believe incorrectly that Hermès was associated with the NFT collection and that Rothschild had profited from that confusion. Rothschild in defense claimed that his NFT collection itself was a form of artistically relevant expression that did not explicitly mislead customers, and, therefore, was a protected form of speech.

On May 5, 2022, the Court denied Rothschild’s motion to dismiss, and both parties subsequently filed cross-motions for summary judgement.

On February 2, 2023, in his opinion when denying both parties’ motions for summary judgment, Judge Rakoff made two interesting findings:

1. first, Judge Rakoff reaffirmed that the matter should be assessed using the two-part test articulated in Rogers v. Grimaldi, for evaluating trademark infringement in artistic works. Hermès had challenged the application of such test, arguing that Rothschild had no discernable artistic intent or expression in promoting and selling the MetaBirkins NFTs. Judge Rakoff commented that “a court may not strip an artistic work of First Amendment protection merely because the artist seeks to market and sell his creative output.”
   
   
2. second, the Court found that there was “a genuine factual dispute as to whether Rothschild's decision to center his work around the Birkin bag stemmed from genuine artistic expression or, rather, from an unlawful intent to cash in on a highly exclusive and uniquely valuable brand name.” 

This denial of summary judgment meant that the Court determined that there was a genuine dispute of material fact and that a reasonable jury could find that Rothschild’s MetaBirkin collection was art protected by the First Amendment. The case was going to trial.

The trial

That trial kicked-off in the U.S. District Court for the Southern District of New-York on January 30, 2023. Hermès asserted that they initiated the suit, because Hermès “thought people would wrongly think Hermès was involved”[1] in the MetaBirkin NFT project, especially since Hermès had plans to enter the NFTs space on its own. Rothschild’s defense relied on the First Amendment; the artist testified that he had created the MetaBirkin NFTs as an “experiment” inspired by the fact that, unlike many other luxury brands, Hermès had not followed the trend to cease using fur. 

In addition, Rothschild’s counsel argued that Rothschild had no intention of confusing consumers about the source or nature of the NFTs, as Rothschild took credit for the project and included a disclaimer on the MetaBirkin website.[2]

The verdict

In a big win for Hermès, on February 8, 2023, the jury determined that First Amendment protections did not shield Rothschild from liability for trademark infringement, dilution and cybersquatting. The jury also awarded Hermès $133,000 in damages, including $110,000 in respect of Rothschild’s profits and $23,000 for cybersquatting.

Rothschild has indicated his intention to appeal the decision.

Implications 

As a first-of-its-kind case, the MetaBirkin verdict is likely to loom large in the digital assets world, a clear reminder that technological innovations don’t obviate intellectual property rights. Yet, while some may view Hermès' win as a victory for commercial brands and loss for artists, the MetaBirkin case ultimately may stand for much more, including the protection of bona fide artistic expression. For instance, the Court’s confirmation that the two-part Rogers v. Grimaldi test applies to NFTs and the metaverse makes clear that certain digital art may constitute protected speech. 

And, just as importantly, it is not just brands that may have enforceable trademarks and other intellectual property rights – artists may, too. In recent months, as AI-generated artwork and avatars have become wildly popular, so have claims of intellectual property infringement and theft. For instance, in February 2023, Getty Images sued Stability AI (creator of Stable Diffusion, an art generator using open source AI), alleging U.S. copyright infringement and claiming that Stability AI had unlawfully trained its AI using 12 million images owned by Getty Images. 

Similarly, in January 2023 three artists (Sarah Andersen, Karla Ortiz and Kelly McKernan) sued Stability AI, as well as Midjourney and DeviantArt (creators of AI art generators Midjourney and DreamUp, respectively), alleging that such companies had trained their respective AI with five billion images obtained from the internet “without the consent of the original artists,” thereby allegedly infringing intellectual property rights of “millions of artists.”

Not the last word

The MetaBirkin case made clear that existing intellectual property laws continue to apply in the digital world, but it will not be the last word on the subject.

Observers are eagerly awaiting a Californian court’s decision in the Yuga Labs, Inc. v. Ryder Ripps case, which implicates very similar questions to those raised by Hermès against Rothschild. In addition, while the MetaBirkin case was decided by a jury, it will be interesting to see whether a specialist judge would come to different determinations.

A clear message for NFT creators

One thing is certain: emerging metaverses and digital innovations will bring with them many challenges for owners of intellectual property rights, including in terms in monitoring, identifying and enforcing against infringement. The MetaBirkin decision sends a strong signal to NFT creators that, before distributing an NFT, they must first possess the necessary intellectual property rights (copyrights, trademarks, etc) on the underlying asset and confirms that intellectual property rights should apply and be enforced in the digital world, just as in the real world.

[1] https://www.thefashionlaw.com/hermès-v-rothschild-a-timeline-of-developments-in-a-case-over-trademarks-nfts/

[2] https://www.thefashionlaw.com/hermès-v-rothschild-a-timeline-of-developments-in-a-case-over-trademarks-nfts/